Definition for: Letter of Intent
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A "letter of intent" is a document where two or more parties set forth an indication of interest in doing a deal and that they wish to continue discussions and negotiations further. The letter of intent lays out the principal terms of the proposed deal to make sure the parties have a "meeting of the minds" before they devote the greater amount of time, effort and money it take to enter into and consummate a definitive agreement. Letters of intent (or term sheets) are used for acquisitions, venture capital financings, and proposed joint ventures. The key issues in letters of intent include:
- : What is the basic structure of the deal? For example, if it is an acquisition, is the deal a purchase of assets or a purchase of stock?
- : How much money is involved? Will the payment be in cash at the closing or spread out over time?
- : What are each side's key obligations?
- : By what date will the parties sign a definitive contract and close the deal? The letter of intent can also say that if a definitive contract is not signed by that date, then both sides are free to go elsewhere or continue discussions, at their option.
- : Will the negotiations between the parties be exclusive for a period of time? If one party agrees to exclusive negotiations, it will probably want this to last only for a limited period of time, such as 21 days. Agreements for exclusive negotiations can be legally binding on a seller. Buyers of companies often like to get exclusive negotiation provisions because they can get some leverage in the later negotiations.
- : What key conditions have to occur before a final agreement can be executed? For example, buyers of businesses typically want at least two conditions—that they are satisfied with their review of the business and that they have obtained whatever financing is needed to close the deal.
Sample letters of intent can be found at "www.LegalAgreements.com.
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